EC 110 Test 1

In the markets for goods and services in the circular-flow diagram,

households provide firms with savings for investment

Economics is the study of

how society manages its scarce resources.

Goods produced abroad and sold domestically

imports

inflation

increase in overall prices in an economy

Which increases the quantity supplied of a CD, but does NOT increase the supply of CDs?

increase in price of a CD

PPF bowed outward. As more of one good is produced, its OC is...

increasing

the sum of all the individual demands for a particular good or service.

market demand

Efficiency means that society is getting the

maximum benefits from its scarce resources.

change in quantity demanded

movement along demand curve

Change in Quantity Supplied

movement along the supply curve as the price of the product changes

positive statements are descriptive and

normative statements are prescriptive

Adam Smith, Invisible Hand

participants in the economy are motivated by self-interest and that the "invisible hand" of the marketplace guides this self-interest into promoting general economic well-being.

When economists are trying to help improve the world, they are

policy advisers.

Other things equal, when the price of a good falls, the

quantity supplied of the good decreases.

Suppose the cost of operating a 100 room hotel for a night is $10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is $30 and a customer is willing to pay $60 for the night, the hotel manager should

rent the room because the marginal benefit exceeds the marginal cost.

An increase in quantity supplied

results in a movement upward and to the right along a fixed supply curve.

An increase in demand is represented by a

rightward shift of a demand curve

If sellers expect higher basket prices in the future, the current

supply of baskets will decrease

Because the behavior of an economy reflects

the behavior of the individuals who make up the economy

market economy

the decisions of a central planner are replaced by the decisions of millions of firms and households.

demand curve

graphs demand schedule

normal good

the demand for a good falls when income falls

inferior good

the demand for a good rises when income falls

If buyers today become more willing and able than before to purchase larger quantities of stand up paddle boards (SUPs) at each price of SUPs, then

then the demand for SUP's will shift to the right

Equality means that

those benefits are distributed uniformly among society's members

Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve

to the left.

Any change that raises the quantity that buyers wish to purchase at any given price shifts the demand curve

to the right.

equilibrium

where supply & demand curves intersect

Most markets in the economy are

highly competitive.

For a competitive market

if a seller charges more than the going price, buyers will go elsewhere to make their purchases

"ceteris paribus"

"other things being equal"

Which of the following would most likely serve as an example of a monopoly?

*****local electric company*****

Whats a comparative advantage?

-a person can perform the activity at a lower OC than another person

Economists speaking like policy advisers make

. claims about how the world should be.

A professor spends 10 hours per day giving lectures and writing papers. For the professor, a graph that shows his various possible mixes of output (lectures given per day and papers written per day) is called his

. production possibilities frontier

Its impossible for...

....comparative advantage in both goods BUT, you can have absolute advantage in both.

normal good...

....demand rises as income rises

Eating peanut butter reduces risk of cancer by 10%....

....demand shifts out, higher price of PB.

Flood occurs, drowns all peanuts...

....effects the supply, shifts the supply higher, and the new quantity is smaller.

lower price equals....

....greater quality demanded

firms is directly across from...

....households

Increase in number of fastfood restaurants...

....increases the supply of fast food meals

A point that lies outside the PPF...

....is not attainable with the nations current resources & technology

New harvesting peanut method... less damage... faster harvest....

....supply shifts out, equilibrium quantity will be larger

circular flow diagram is...

...a model that explains how the economy is organized between households and firms

Having absolute advantage means...

...being able to produce more of a product with the same amount of resources than another producer.

inferior good...

...decrease in income increases the demand for a good

The two loops in the circular flow diagram represent...

...flows of inputs & outputs and the flow of dollars

OC is...

...highest-valued alternative foregone

National Peanut Day... people eat more PB than usual

...shift in Demand and an increase in quantity supplied

Tradeoffs exists because...

...society has only a limited amount of productive resources

Cat 5 Hurricane hits Louisiana and causes widespread destruction to states sugarcane crop. This causes...

...supply curve for sugar to shift left, causing the price of sugar to rise

A PPF will be linear and not bowed out when...

...the trade-off between the two goods is always at a constant rate

Which of the following would increase in response to a decrease in the price of ironing boards?

ALL OF THE ABOVE!! --the quantity of irons demanded at each possible price of irons --the equilibrium quantity of irons --the equilibrium price of irons

A leftward shift of a supply curve is called a(n)

DECREASE IN SUPPLY

Italy: 6 cheeses produced is 8 watches Swiss: 10 cheeses produced is 50 watches. Comparative advantage of cheese production?

Italy

Which of the following would increase in response to a increase in the price of ironing boards?

NONE OF THESE!!!! --the quantity of irons demanded at each possible price of irons --the equilibrium quantity of irons --the equilibrium price of irons

You lose your job and, as a result, you buy fewer iTunes music downloads. This shows that you consider iTunes music downloads to be a(n

NORMAL GOOD (not complementary, luxury, inferior good)

Law of Demand

Other things being equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.

a graph that shows the various combinations of output that the economy can possibly produce given the available factors of production and the available production technology that firms use to turn these factors into output.

PPF

Which of the following would cause price to decrease?

a surplus of the good

Which of these statements best represents the law of supply?

When the price of a good decreases, sellers produce less of the good.

competitive market

a market in which there are so many buyers and so many sellers that each has a negligible impact on the market price.

marginal change

a small incremental adjustment to an existing plan of action.

quantity demanded

amount of the good that buyers are willing and able to purchase. **price of the good**

The producer that requires a smaller quantity of inputs to produce a good is said to have

an absolute advantage in producing that good.

Comparative advantage is found by

comparing relative OC.

If a firm is a price taker, it operates in a

competitive market

opportunity cost

cost of what you give up to get that item

A higher price for batteries would result in a(n)

decrease in the demand for flashlights (has nothing tot do w/ batteries)

If supplies expect their price of their product to fall in the future, then they will

decrease supply in the future but not now

Two goods are substitutes when a decrease in the price of one good

decreases the demand for another good

a table that shows the relationship between the price of a good and the quantity demanded, holding constant everything else that influences how much of the good consumers want to buy.

demand schedule

Normative statements are not

descriptive

When the price of peaches changes, the demand curve for peaches

does NOT shift bc its measured on the vertical axis

distributing output fairly among society's members

equity

not on PPF?

equity

Goods produced domestically and sold abroad

exports

An economic outcome is said to be efficient if the economy is

getting all it can get from the scarce resources it has available.

You watch a lot of HGTV during your summer vacation, and you notice that most housing buyers list granite countertops in their "must have" lists when buying a new or existing house. You expect the demand for

granite counter tops to shift to the right

Olivia was accepted by Northwestern and by another university. She is trying to decide where to go. Which of the following should influence her decision?

the difference between living expenses at Northwestern and her second choice, but not how much she spent applying to Northwestern

A microeconomist — as opposed to a macroeconomist — might study

the effect of new regulations on production in the pulp and paper industry.

Justin decides to spend an additional hour working OT rather than playing football with friends. He earns $6 for his work. His OC is...

the enjoyment he would have received playing football with his friends

For both parties to gain from trade,

the price at which they trade must lie between the two opportunity costs.

Most significant determinant of Quantity Supplied?`

the price of the good

On a PPF, production is inefficient if

the production point is inside the frontier

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced